Canada’s dollar is trading near its weakest level in a year and a half, and the story is only partly Canadian. The loonie steadied around 1.4235 per US dollar — roughly 70.25 US cents — after briefly touching 1.4263, its weakest intraday level since April 2025. The move fits a broader pattern: the US dollar has been strengthening against many currencies as US bond yields climb, pulling global capital toward dollar-denominated assets.
Why the US dollar is calling the shots
The main driver is coming from south of the border. The yield on the 10-year US Treasury note — a benchmark for government borrowing costs and a key reference point for global asset prices — pushed toward a 24-year high near 5.34%. When US yields rise, US bonds and other dollar assets become more attractive to investors around the world. That lifts demand for the greenback and, by extension, pushes down the value of currencies like the Canadian dollar.
This is not a uniquely Canadian problem. The euro has also slid against the dollar as US yields climbed, and emerging-market currencies from the South African rand to Uganda’s shilling have faced similar pressure. The common thread is a US dollar that is expensive to bet against when Treasury yields are this high.
Oil lends a hand, but domestic data softens
Oil prices offered the loonie some support. US crude rose 1.9% to $92.16 a barrel after China suspended some refined-product exports. Energy is a major Canadian export, so higher crude prices typically help the Canadian dollar by improving the country’s terms of trade — the value of what it sells abroad relative to what it buys.
But domestic momentum looked softer. S&P Global reported that Canada’s manufacturing purchasing managers’ index (PMI) — a survey that tracks activity in the factory sector — slipped to 51.5 in September from 53.0, the lowest reading since March. A reading above 50 still signals expansion, but the direction of travel matters: the pace of growth is slowing.
At the same time, traders dialed back expectations for tighter Bank of Canada policy. The implied probability of a rate hike this month fell to about 45% from roughly 64% a week earlier. When US yields stay high while Canada looks less likely to raise rates, the interest-rate gap between the two countries widens. Investors get paid more to hold US dollars, which tends to weigh on the loonie.
What it means for investors
A weaker loonie has direct consequences for anyone spending or investing in US dollars. At about 70 US cents, a Canadian dollar buys less abroad than it did when the exchange rate was closer to parity. That makes US travel, US-priced subscriptions and online purchases billed in USD more expensive in Canadian-dollar terms — even if the US sticker price hasn’t changed. Because many imports and imported inputs are priced in US dollars, a softer currency can also filter into Canadian consumer prices over time.
For investors, the currency move cuts both ways. Canadian holders of US stocks or US-dollar assets get a boost when the loonie weakens, because their US holdings are worth more when converted back into Canadian dollars. Conversely, a stronger loonie would erode those gains. For companies, exporters may benefit from a more competitive exchange rate, while importers and businesses with US-dollar costs face headwinds.
The currency backdrop also complicates the Bank of Canada’s job. Weaker growth signals like September’s PMI suggest the economy is cooling, which would normally argue for lower rates. But a cheaper currency can keep inflation pressures alive by making imports costlier. That tension means even if the central bank pauses on rates, Canadians can still feel the pinch through the exchange rate.
What to watch next
Investors will be watching US Treasury yields closely, since they remain the single biggest force driving the dollar. Any sign that US yields are peaking could take pressure off the loonie. On the Canadian side, upcoming Bank of Canada communications and economic data will shape rate expectations — and by extension, the interest-rate gap that has been weighing on the currency. Oil prices, meanwhile, remain a wildcard that could offer support or add to the pressure depending on where crude goes next.
For now, the loonie’s slide looks less like a Canada-specific story and more like a global dollar story — one that everyday investors will feel in their wallets and their portfolios alike.
